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The View From Taft

By Mary Margaret Que
Thursday, April 16, 2009
Outsourcing pertains to sub-contracting a process to a third party. These processes can range from simple ones, such as encoding and janitorial services, to more complex processes, such as payroll preparation, customer service, and even an entire manufacturing process.

The Philippines is one of the countries that are benefiting from outsourcing, specifically, the offshoring of services, largely from the United States. This offshoring of services has created an entire industry known as business process outsourcing (BPO), which has created and benefited new suppliers. Undoubtedly, the BPO industry has contributed, and is expected to continue contributing, to the country's foreign exchange earnings and to employment generation. Although still dominated by contact centers, the BPO industry is expanding into backroom operations such as accounting, design, and human resource services.

Companies that choose to outsource services have to deal with the issues of confidentiality of information, the clients' right to know, and taking responsibility for the activities and performance of outsourced personnel.

The BPO industry, too, is not without its challenges. Aside from foreign exchange fluctuation, employee turnover, and competition from other countries, challenges peculiar to the industry confront BPO�s with foreign companies as clients. For instance, BPO companies serving the American market operate during (and often extend beyond) US time zones. This operating reality has costs that are beyond night differential rates. From a social perspective, the challenge is to have a sector of the workforce, usually the younger ones, working from late at night until the wee hours of the morning. Shift changes make it difficult for the body to adjust. Working at odd hours also seems to create an atmosphere conducive to caffeine, cigarettes, and other addictive substances. The situation is further complicated when BPO employees have young children in need of parenting.

Most local companies outsource non-core business functions, such as messengering, janitorial, and some clerical work, with the third-party agency personnel rendering work at the client's site.

The main benefit of this type of outsourcing is cost savings. From a business perspective, it seems logical to outsource personnel for non-critical positions. After all, the perceived contribution of these positions to the overall company objective is likely to be both minimal and not subject to change, regardless of the tenure of the persons occupying these positions. A lot of companies find it difficult to justify having to pay high salaries to people occupying low-level positions simply because they have been with the company for a long time. The equivalent wages are more controllable, and the company saves on other benefits that are provided only to regular employees. Management also benefits from having fewer employees to manage and fewer labor-related problems to solve. Moreover, management does not need to address concerns arising from inequity when tenured but low-level personnel end up earning more than the newer but more critical personnel.

Outsourcing is also common in the retail industry, where stock and counter clerks, baggers, and cashiers are usually provided by agencies. One wonders, though, why, if outsourcing is intended to allow companies to concentrate on core competencies and core business processes, positions responsible for core retail processes are outsourced.

Theoretically, the savings from wages and benefits need to be weighed against the costs of hiring and training and against the benefits a company can derive from employee loyalty. Given the trend in outsourcing, it would appear that the benefits are considered to outweigh the costs.

It is also possible that the costs really outweigh the benefits but through "creativity," to borrow a term from Legacy's De los Angeles, you can have it all! There are companies that seem to be able to manage continuous arrangements (or close to it), despite the six-month limit for probationary or contractual employment.

With more and more companies turning to outsourcing, more and more members of the workforce are unable to earn tenure. Thus, they have no job security, nor do they qualify for employee benefits beyond what are mandated by the government. They also have little or no opportunity for training that will allow them to get out of the outsourcing pool and improve their lives.

Are companies aware of the social costs of outsourcing? If so, are they turning a blind eye to these costs? Maybe the question to ask is: do these social costs merit any consideration from companies at all?

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